Bowling Alone, Bowling Together: Is Social Capital Priced in Bank Loans?
37 Pages Posted: 23 Jun 2015 Last revised: 17 Jan 2018
Date Written: January 16, 2017
We investigate whether societal-level social capital enjoyed by firms affects their cost of bank loans. Employing a county-level measure of societal-level social capital, we find that firms with higher social capital are associated with lower loan spreads and the effect is robust after controlling for measures of financial reporting quality and management characteristics. We also show that the effect of social capital is more pronounced for firms that have no previous relation with the lenders and firms that are geographically far away from the lenders. Finally, we utilize two exogenous shocks that significantly change societal-level social capital to identify the effect of social capital on bank loans. Our findings contribute to the rising literature on the benefits of societal-level social capital.
Keywords: Social Capital, Cost of Bank Loans
JEL Classification: P34
Suggested Citation: Suggested Citation